Overview:
A new virus called 2019 novel coronavirus (2019-nCoV) has been identified, and is spreading. The virus is similar to the SARS and bird flu viruses we’ve seen come out of Asia in the past two decades. Initial transmission was likely animal to human, and new cases of the illness in people who weren’t at the market in question in Wuhan City, China indicate the virus can now be spread from person to person. The Center for Disease Control in the US is monitoring the disease, and airports around Asia and the US are screening passengers. The Wall Street Journal reports that at this point, over 300 people have become ill, 6 have died, and there is one confirmed case in the United States. It’s possible that the virus can also be spread through airborne transmission.
In response to this news, the entire travel sector was down today. US-based airlines were down 2% – 4% with United Airlines Holdings down 4.1%. Expedia Group, Booking Holdings, and TripAdvisor were down around 1 ½% to 3%. The cruise lines (Carnival, Royal Caribbean, and Norwegian) were down 2% – 3%, and Wynn Resorts and Las Vegas Sands, which have substantial assets in Macau, were down 5% – 6%.
The Likely Path of the Virus:
We spoke with Dr. Brian Meltzer about 2019-nCoV. Brian was the Medical Director of the Urgent Care Center at the memorial Sloan-Kettering Cancer Center and has worked in the pharmaceutical divisions of Johnson & Johnson, Purdue Pharma, and Adare Pharmaceuticals. His view is that while the virus is medically different from the flu virus, coronaviruses spread in a similar manner. Crowded airplanes and tourist destinations are more likely places for exposure. He notes that for most people, catching the virus would be uncomfortable, but unlikely to cause any long-term issues for those who are not elderly or already ill.
We both remember the Ebola outbreak in the Congo in 2018 which took place less than 200 miles from an international airport as well as the 2014 scare when a doctor infected with Ebola decided to go bowling in New York City. While this doctor didn’t infect anyone, everyone in the city who had put their fingers into a bowling ball was terrified. The market and travel companies weathered both of those scares as well as the previous SARS and bird flu epidemics.
The Opportunity in the Travel Stocks:
In general, we like buying stocks that are down on temporary news. We think this virus situation will have a temporary impact and will fade just like flu season every year. This should have no long-term effect on any of the travel companies. Wynn and Las Vegas Sands will take a hit in the first quarter as concerns about 2019-nCoV will reduce travel to Macau during the seasonally important Chinese New Year which starts this Saturday. (It’s the Year of the Rat in case you were curious.) These companies will have lower 1Q earnings, but it’s hard to see how this affects the gaming stocks during the rest of the year let alone into 2021.
What it Looks Like if We’re Wrong:
What makes a virus that moves from animals to humans and then becomes transmitted between humans dangerous is that it could continue to mutate. Right now, this virus has only infected 300 people with only 6 deaths. If it mutates into something more deadly, then we have a bigger problem. This is particularly true as there is speculation that the incubation period for 2019-nCoV is around 10 days. Checking travelers’ temperature in airports won’t catch someone who has been exposed but is not symptomatic yet. That means that a lot of the precautions being taken right now are not going to be effective. We note that the above scenario, while medically possible, is highly unlikely, and that we’ve seen much worse outbreaks of more deadly diseases within the past few years let alone during the course of a lifetime.
